Uncategorized Archives - Greater Cincinnati Automobile Dealers Association

Auto makers expect car sales to defy economic gloom

By Ryan Felton

Even as consumer spending cools, one place buyers continue to splurge is at the car dealership.
 
Auto executives reporting earnings earlier this week displayed confidence that not only would demand for cars and trucks remain resilient in the second half of the year, but also an easing of supply-chain disruptions would help power profits in coming quarters.
 
A customer-order backlog, historically low dealership stock and car shoppers paying higher prices for vehicles all have led to a string of profitable quarters for most global car companies.
 
The unique dynamic is fueling optimism across the industry that it can weather the mounting economic uncertainty better than it has done in past recessions.
The financial boost is critical for these manufacturers, which are spending billions of dollars to build battery plants and shift their lineups to electric vehicles.
 
Both Ford Motor Co. and global car maker Stellantis NV reported double-digit increases in their net results this week. General Motors Co.’s second-quarter was softer, mostly due to continued parts shortages, but it still delivered a net profit of $1.69 billion and reaffirmed its year-end guidance.
 
“Inventory on the ground at dealers hasn’t changed in really about six quarters, even as production has gone up,” said Paul Jacobson, GM’s chief financial officer. “There’s a big pocket of demand that hasn’t been met yet.”
 
The U.S. government said Friday that household spending rose faster in June, but economists
say overall it has slowed sharply when inflation is taken into account. Retailing-giant
Walmart Inc. and consumer-products firm Procter & Gamble Co. both warned this week that
higher prices were leading shoppers to pull back, an ominous sign for the U.S. economy.
 
Some auto makers are starting to take steps to recession-proof their business, including
initiating widespread layoffs, and to respond to other pressures, such as higher commodity
costs, rising interest rates and factory shutdowns in Asia related to rising Covid-19 infections.
 
GM said on Tuesday that it would curtail hiring and take precautions to slim down further if
economic challenges worsen.

Electric-vehicle makers Tesla Inc. and Rivian Automotive Inc. have disclosed plans to cut
thousands of salaried workers following earlier hiring sprees.
 
Ford has also embarked on a broad restructuring to shave $3 billion in annual costs and
bolster its transition to electric-vehicles. In coming weeks, the Dearborn, Mich., auto maker is
expected to disclose plans to cut more than 4,000 white-collar workers, The Wall Street
Journal reported earlier this month.

“We absolutely have too many people in certain places, no doubt about it,” said Ford Chief
Executive Jim Farley Wednesday. He didn’t confirm or respond directly to questions about the
workforce reductions.

Auto executives and dealers say the industry overall is in a much stronger position than it was
in previous downturns. It is also aided by somewhat unusual conditions: The prolonged
inventory crunch on dealer lots has led to accumulating pent-up demand and buyers willing
to pay a hefty premium for cars and trucks that are available.

Mike Manley, chief executive of publicly traded dealership chain AutoNation Inc., said if there
is an economic downturn, consumers’ appetite for mid- to higher-priced vehicles, including
those in the luxury category, is likely to remain strong.

“If we are going to go into a recessionary period, that’s going to be the middle to the last
demographic that gets hit,” Mr. Manley said. AutoNation, earlier this month, said as many as
50% of the vehicles that are incoming to its dealerships over the next few months are presold,
and some models, such as the Ford Bronco, are sold out for more than a year.

Meanwhile, the average price paid for a vehicle continues to nudge higher, hitting another
record in June of $45,844, according to industry research firm J.D. Power.

And more buyers are taking out bigger car payments. The number with auto loans costing at
least $1,000 a month hit a record 12.7% in June, according to Edmunds, a car-shopping
website and data-analytics company.

Stellantis CEO Carlos Tavares said Thursday that the company’s global shipments could fall
about 50% and it would still break even. He said he believes Europe is more at risk of a
recession and the U.S. would have a milder downturn.

“We have a very low break-even point,” Mr. Tavares said this week on the company’s earnings
call. “That is going to give us significant sustainability to face any unpredictable crisis.”
 
Still, supply-chain disruptions and a long-running computer-chip shortage continue to weigh
on the industry’s outlook. GM’s sales in the second-quarter were disproportionately hit by
such obstacles, leaving it with 95,000 unfinished vehicles it couldn’t sell during the period.
 
“We’ve been dealing with some of these chip issues for the last couple years,” GM’s Mr.
Jacobson said. “This one was a little late breaking.”

The supply constraints are depressing sales, which in the U.S. were down 18.2% industrywide
to 6.7 million vehicles in the first six months, according to Wards Intelligence, a firm that
tracks auto industry data.

Affordability is also becoming a bigger concern as surging car prices have pushed many
budget-conscious buyers out of both the new and used car markets. Some executives say once
dealership stock bounces back, it could be difficult for car companies to sustain the premium
pricing.

“Consumer sentiment is all over the map,” Tesla Chief Executive Elon Musk said on the EV
maker’s earnings call this month.

Tesla had its first sequential decline in quarterly profit in more than a year in the second
quarter, hurt by an extended shutdown at its Shanghai plant due to local Covid-19
restrictions. But Mr. Musk said he isn’t concerned about weakening demand for Tesla, whose
customers face monthslong waits for many vehicle configurations.

“We have so much excess demand that was really just not an issue for us,” he said on the call.

– Mike Colias, Elliott and Nora Eckert contributed to this article.
 
 

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Coronavirus Bolsters Car Ownership as Consumers Rethink Shared Rides

By William Boston in Berlin and Mike Colias in Detroit – Wall Street Journal

For years, auto makers and traders pumped billions of {dollars} into new ride-hailing and car-sharing corporations, predicting the rise of those ventures would finally lead their core enterprise of promoting automobiles to say no.

Now, with widespread concern about coronavirus contagion, some say they’re seeing a revival of shoppers’ curiosity in proudly owning their very own automotive.

The Covid-19 pandemic has brought about folks from Beijing to Boston to shun public trains, trams and buses, as they concern contracting the illness from contact with strangers in public locations. Many automotive homeowners who beforehand had left them residence in favor of shared or public transportation at the moment are taking their very own automobiles out of security considerations, analysts and executives say.

That intuition has produced a shiny spot in an in any other case bleak gross sales outlook because the coronavirus batters the economic system. Some automotive makers say new automotive gross sales in China, the place restoration within the auto trade is starting, are pushed partly by new automotive customers trying to keep away from the danger of public or shared rides.

“We have now seen curiosity from a brand new sort of buyer, these eager to personal a private automobile to flee the dangers of an infection on public transport,” Stephan Wöllenstein, chief govt of Volkswagen Group China, stated final week.

Many are first-time automotive patrons, he stated, noting that they made up about 60% of the corporate’s China gross sales final month.

Whereas auto makers say they aren’t giving up on their future bets in shared transportation, any reviving curiosity in automotive possession—at the least within the short-term—may have an effect on their investment methods.

Ford Motor Co. executives say they’ve began to re-evaluate enterprise plans for autonomous automobiles, involved the pandemic may decrease demand for shared companies long run. Final month the corporate stated it might delay introducing a business autonomous-vehicle service slated for subsequent yr till 2022.

Daimler AG and BMW AG final yr merged their car-sharing and ride-hailing group FreeNow to decrease prices. In April, hit by the financial fallout from the brand new coronavirus, FreeNow stated it might restructure and might need to chop jobs.

“In the mean time, we’re seeing that folks would quite take their very own automotive. However we will’t predict immediately whether or not that is going to final,” BMW CEO Oliver Zipse stated on an earnings name final week.

There are early indications the pandemic is pressuring such ventures in different methods.

General Motors Co. ’s driverless-car enterprise, Cruise, not too long ago instructed workers it might lay off about 150 staff, or about 8% of the workforce, as a part of cost-cutting through the well being disaster, folks acquainted with the matter have stated.

The Detroit auto maker additionally stated final month it might shut down Maven, its four-year-old car-sharing service, citing disruption from the pandemic as an element.

Auto executives first started pursuing such transportation companies across the center of final decade, viewing the impact of Uber Technologies Inc. and different Silicon Valley startups as a long-term risk to their core enterprise of constructing and promoting automobiles.

The investments, which had been highlighted in investor displays and promoted to Wall Avenue, coincided with heady instances within the automotive enterprise as gross sales boomed following the monetary disaster. The long term of profitability freed up money to experiment with new enterprise fashions and spend money on startups.

GM and Ford have spent billions of {dollars} creating driverless automobiles to supply future robo-taxi fleets or supply companies. They’ve additionally made extra modest investments on budding personal-transportation choices like car-sharing and month-to-month subscriptions companies for short-term automobile loans.

Volkswagen final yr began its personal electrical car-sharing service, WeShare, that it’s increasing in Europe and expects to turn into a foundation for a spread of linked automotive and app-based companies.

Ford, pushed by longtime govt chairman Invoice Ford, has greater than most automotive makers embraced the thought of providing prospects alternate options to automotive possession.

Within the final two years, Ford has acquired an electric scooter company and bought a startup that helps cities plan transit networks. It additionally has been working to develop driverless automobiles that would at some point help robot-taxi companies or autonomous supply.

However on an earnings name final month, operations chief Jim Farley stated Ford is reconsidering its plans, with a sharper give attention to companies that don’t require sharing the within of a automobile, resembling autonomous supply or scooters.

“This pandemic may have an effect on how prospects reside and work for a few years to return, with zero-touch now as an integral a part of their lives,” Mr. Farley instructed traders.

GM has outlined huge ambitions for an autonomous, Uber-like ride-hailing enterprise that executives have stated may eclipse income from the corporate’s car-building enterprise by 2030. Its Cruise subsidiary has attracted billions of {dollars} in exterior investment.

GM Chief Govt Mary Barra has stated there isn’t any plan to curb Cruise funding as money tightens through the pandemic.

The transfer again to higher use of personal transportation is already having an affect Uber and its ride-hailing rival, Lyft Inc. “Rider demand on our platform will likely be down for the foreseeable future,” Lyft CEO Logan Inexperiencedsaid last week.

Wolfgang Schäfer, the finance chief of auto provider Continental AG , stated final week that the corporate was pushing aside all however probably the most pressing investments to protect money. He stated some investment in autonomous automobile know-how could be postponed for now as a result of the market was up to now off sooner or later.

Mike Jackson, chief govt for AutoNation Inc., the U.S.’s largest dealership chain, stated he’s already seeing a shift in shopper attitudes that helped elevate April gross sales and that would final past the pandemic.

“They need private area in mobility,” he stated of the purchasers now heading to showrooms. “They view the car as one thing they’ll management.”

We still need kick-the-tires auto shows

By Laurence Iliff 

Now that there are no auto shows — or other public automaker events — we can reignite the debate over whether they are worthwhile. Automakers have done an admirable job scrambling to arrange live-video car debuts, and even driving events, through online presentations and no-touch vehicle loans.

So, it can be done.

And it’s fair to say that some of the older show formats have become stale. Too many presentations are heavy on slick video and short on public participation. Now that the virtual alternative is real and not theoretical, it’s fair to consider as an option.

And Zoom ain’t it, chief.

Car shoppers and auto writers need more interaction with engineers and product specialists, not less. Post-coronavirus reality needs splashy debuts and eye-rolling hype and old-fashioned kicking of the tires and sitting in the seats — in real life.

Some of the virtual presentations by automakers have been very well done given the circumstances. But the real value of auto shows is what happens after the presentations. That’s true for reporters interviewing executives on the show floor or having less structured conversations outside the convention center. It’s also true for the public as more automakers focus on live demonstrations of safety and tech features.

Sam Abuelsamid, principal analyst for Navigant, remembers the last big financial crisis when automakers tried virtual presentations to save money. Once the worst of the crisis passed, automakers went back to real-life events because they made sense.

“My guess is that once this subsides, and people can start mixing again, automakers will go back to the way it was,” he said. “While the online presentation is fine up to a point, one of the advantages when you are at the events is being able to talk to subject-matter experts. And you miss out on that sitting on your couch watching it on your computer.”

________________________________________________________________________________________

LETTER TO THE EDITOR:

Thank you for “COVID-19 diary: OK, we still need kick-the-tires auto shows” (Laurence Iliff, April 20). The Auto Shows of North America could not agree more. No platform is better equipped than auto shows for connecting customers with the best that auto manufacturers have to offer.

For over 100 years, auto shows in North America have helped enhance automotive sales and increase brand loyalty, even as wars, pandemics and economic recessions have plagued our country. Indeed, as the coronavirus crisis subsides, auto shows will be front and center leading the recovery — and we want to help.

We have proven time and again that auto shows are vital to the success of the automotive industry, and we stand ready to make sure that dealers, communities, consumers and OEMs not just recover, but come back stronger than ever.

SCOTT LAMBERT2020 co-chair, Auto Shows of North America, West St. Paul, Minn.

JENN JACKSON2020 co-chair, Auto Shows of North America, Charlotte, N.C.

Finance pro’s six tips for getting your PPP application quickly approved

By   – Staff Reporter, Cincinnati Business Courier

Barry Peterson has some tips for Greater Cincinnati small business owners who are trying to get their share of the U.S. Small Business Administration’s new Paycheck Protection Program.

Peterson should know. He’s helped 37 companies – all of the portfolio companies in which his firm, downtown Cincinnati-based Northcreek Mezzanine, has invested – go through the PPP process.

Seven of Northcreek’s 37 companies had already received SBA approval for their PPP applications as of late last week, Peterson, a Northcreek managing director, told me.

“We’ve had the benefit of following the legislation and even helping to shape it through our industry association,” Peterson said.

Northcreek invests debt and equity to provide capital that banks typically don’t want to provide, often alongside private equity firms. Its investments focus on companies with established revenues and profits.

Most are small to midsize companies, and all are well under the 500-employee maximum to qualify for PPP funding, Peterson said.

The program enables small businesses of 500 employees or less to borrow up to 2 1/2 times their average monthly payroll. They can apply 25% of that to other costs such as mortgage, rent and utility bills to keep the business open. Loans of up to $10 million are available. The key for many companies: the loans are forgivable for the amount used for payroll, rent or mortgage, utilities and other qualifying expenses over the eight weeks after they receive the money. They have to keep all their employees on staff to get the loan forgiven. Otherwise, the loans charge a low 1% interest rate.

As of 3:00 p.m. Sunday, banks had processed $205 billion worth of PPP loan applications, according to the American Bankers Association. That’s 58% of the program’s $350 billion limit, although that amount is expected to expand.

Here are some tips he picked up while shepherding more than three dozen companies through the PPP process:

  • Get started now if you haven’t already. “We’ve been advocating to everybody there’s a first-mover advantage,” Peterson said.

  • Choose your bank wisely. Loan applications have to go through a bank. It’s key to identify which bank is most likely to process your loan. That’s usually the bank where you already have a lending or depositor relationship. “Your path will be quicker when you go where your banker knows you,” Peterson said.

  • Open up communication lines. Along the lines of knowing your banker, talk to that person, too, to make sure you understand the bank’s particular requirements, Peterson said.

  • Do what you’re told. “Follow the banker’s directions to the letter,” Peterson said. “If there’s any variation, the application is going to be set aside to be dealt with later. That’s not where you want to be. Make it easy for the banker.” Peterson said the “worst thing” that can happen is to have your application put into the set-aside pile.

  • Get your financial documents together. The loan application process isn’t overly lengthy, but you’ll need some financial data, particularly monthly payroll figures for either the past 12 months or for 2019. There’s some discrepancy there. The Treasury documents tell applicants to use payroll data for the last 12 months. But other information has said most companies will use 2019 data. Ask your banker which they prefer. Make sure you have that information together. The loan amount is based on those figures.

  • Be patient. Hundreds of thousands of small businesses are applying, many all at the same time. “Banks have been asked to move at light speed,” Peterson said. “It’s a massive effort.”
  The program is an enormous step toward getting the economy back to normalcy, Peterson said.

“I think this is going to end up making the difference in how quickly we recover,” he said. “This lifeline is going to carry us to the other side. Otherwise, we’d be in a tailspin for a long time.”

Cincinnati bankers tell small business owners what not to do in applying for PPP

By Sougata Mukherjee and Steve Watkins – Cincinnati Business Courier

Cincinnati banks, like those across the country, have been inundated by applications from small businesses seeking money through the U.S. Small Business Administration‘s new Paycheck Protection Program.

But for companies rushing for cash, there are several things small-business owners need to be mindful of, bankers said.

Banks have been scrambling to handle the flood of applications since the program launched Friday. Fifth Third Bank (Nasdaq: FITB), Cincinnati’s largest local bank and the nation’s ninth-largest U.S.-based consumer bank, had received 22,000 applications as of midday Tuesday, CEO Greg Carmichael told me.

Smaller banks are getting overrun, too. LCNB National Bank had to temporarily suspend taking new applications early this week, CEO Eric Meilstrup told me. The $1.6 billion lender had received more than 500 applications.

“We would have had many more, and we didn’t want customers to be part of the backlog if they had another option,” Meilstrup said. “We have a huge desire to reopen that, and we’ll look at it early next week. We obviously don’t want to not take care of somebody. But we’re focusing right now on taking care of the customers who have applied.”

Milford-based CenterBank, a big SBA lender that has just $250 million in assets and three offices, has processed 150 PPP applications totaling $30 million, president Stewart Greenlee told me. That’s small compared with the big banks, but it’s still rising and nearing 15% of the bank’s total assets.

“We studied this ahead of time and had a dedicated group that worked over the weekend to handle this,” Greenlee said. “We wanted to make sure we could relieve anxiety for our customers as fast as we could.”

The program enables small businesses of 500 employees or less to borrow up to 2 1/2 times their average monthly payroll. They can apply 25% of that to other costs such as mortgage, rent and utility bills to keep the business open. Loans of up to $10 million are available. The key for many companies: the loans are forgivable for the amount used for payroll, rent or mortgage, utilities and other qualifying expenses over the eight weeks after they receive the money. They have to keep all their employees on staff to get the loan forgiven. Otherwise, the loans charge a low 1% interest rate.

“It’s a Herculean task,” First Financial Bank CEO Archie Brown told me. “The Treasury Department and the SBA created legislation and rules and rolled it out to banks all in the last week.”

Business owners can take steps to smooth the process that’s encountering logjams at the SBA even when things are done right. Make a mistake and your application can get slowed even more.

Tips include:

  • Do not apply at several banks: One borrower can only apply with one lender. “If someone came to us and said they already applied at another bank, we just ask them to be patient with that bank,” Greenlee said.

  • Don’t turn in incomplete submissions: They will delay processing your loan. While lenders are going in with customized processes, several banks have already set up a system that kicks back the application to a banker when the form is incomplete. KeyBank has developed a list of documents and information small-business owners need when applying. You can learn more here.

  • Do get updates. Visit the U.S. Treasury website, linked here, and SBA’s web pages often for updates. Greenlee says that will give business owners the most current information on any changes in the program.

  • Do be patient: “I understand if I’m a customer I just want a response,” Meilstrup said. “We’re working on that piece of it. I totally understand it’s hard to be patient when they’re worried. We’re telling our customers we’re working extremely hard to take care of you. Don’t take the absence of a response as meaning we’re ignoring you.”

  • You cannot use IRS 1099 workers as your employees: While this may not be an issue in the front-end when applying for the loan and calculating the relief amount, it may become an issue when small businesses are asking for the loan forgiveness down the road. Double-check your payroll calculation and total number of employees. On April 10, the SBA will allow independent contractors and self-employed individuals to apply for the loan relief program. Typically, those entities file their taxes using 1099 forms.

  • Do not start new entities and apply for loan: The PPP program allows businesses to separately apply for a loan for every business where a person/persons may have a beneficial ownership. But all entities under one beneficial ownership must have been an active business by Feb. 15.

  • Sum of your holdings cannot go past 500 employees: This provision is complicated. Hotels and restaurant chains are exempt from this rule, and late last week the SBA added franchise owners who employ more than 500 people to that exemption list as well. The only caveat: No single outlet could employ more than 500 people. For every other business, the 500-worker maximum number is in play.

  • Don’t miscalculate: Complete your own calculation ahead of time to make sure you borrow as much as you qualify for the PPP relief. Remember that in the event some of your loan is not forgiven in the final calculation, it will end up being a 1 percent loan for a few years — still not a bad deal.

Stuart Sorkin Bio

Stuart Sorkin is the founder of The Business and Legal Advisors, a consulting firm specializing in the financial and legal protection of business owners, executives, and entrepreneurs throughout the United States and overseas at every stage of their business life cycle. 

Mr. Sorkin works with startups and small- to mid-size business owners to integrate their personal financial and estate planning goals with the development and implementation of growth and/or succession or exit strategy for their business.

Mr. Sorkin is the co-author of Expensive Mistakes When Buying & Selling Companies…and How to Avoid Them in Your Deals.  As a former entrepreneur, CPA, and attorney with more than 30 years of experience, he possesses a unique set of capabilities to assist a business owner with the challenges of growing and/or exiting a business.

Mr. Sorkin works with clients on all forms of transactional legal work, including: choice and formation of business entities; raising of capital and financing; mergers and acquisition; real estate acquisition and development; incentive compensation; federal and state income tax planning; succession and retirement planning; estate planning and asset protection; including, trusts; and, family and charitable gifting strategies and family partnerships.

Mr. Sorkin has been interviewed by the Wall Street Journal, Time Magazine, USA Today, Money Magazine and BankRate.com on a wide range of tax matters, and is a frequent lecturer on exit strategies, estate planning and asset protection to various professional and small business organizations and associations.

His specializes in business consulting, start-ups, mergers and acquisitions as well as estate planning and asset Protection

Downtown Cincinnati GCADA Deputy Registrar Office, Hamilton Co. Clerk of Courts office open limited weekday hours beginning Monday, March 30

March 27, 2020 – The downtown Cincinnati GCADA Deputy Registrar Office and Hamilton Co. Clerk of Courts Office will be open limited hours Mondays through Fridays for dealer work beginning Monday, March 30, 2020.

The Clerk of Courts Office hours will be 8 a.m. to noon by appointment. Dealers should call ahead to (513) 946-6450.

Our GCADA Deputy Registrar Office hours will be 8 a.m. to 11 a.m. Contact the office at (513) 721-3271 or Charlie Howard at (513) 516-6762.

$2 trillion U.S. relief bill provides a great deal of assistance for small businesses

U.S. Senate passed bill March 25 and U.S. House expected to pass March 27  

NADA Chairman Rhett Ricart praises senate passage of economic stimulus package

NADA circulated the following preliminary summary of the $2 trillion relief bill passed late last night by the U.S. Senate. 

The U.S. House is expected to vote on and pass the bill tomorrow.  Currently,  the House adjusting its voting process in light of the pandemic.

NADA indicates the bill provides a great deal of assistance for small businesses, with minimal eligibility requirements.  Much more information regarding the assistance application process, benefits, requirements and more will forwarded in the coming days.

Small Business Loan Provisions

A completely new, temporary lending program to aid small business The bill will provide $349 billion to support  loans through a new Paycheck Protection Program, which Congress designed to keep employees on the payroll and save small businesses. The Small Business Administration (SBA) will stand up a completely new program that will only nominally be part of the existing SBA Section 7(a) loan program. To expedite the funding of the new loans, the Treasury Department and SBA will expand the number of participating banks and credit unions, and captive finance companies may also be included. 

Minimal eligibility requirements Any business operational on February 15, 2020, that paid salaries and payroll taxes will be eligible, but there is a limit of no more than 500 employees. Fortunately, the bill includes provisions to waive normal affiliation rules which should be applicable to many dealers. For dealers, there will be no test for total revenue. 

Borrower certification to obtain loan Borrowers will be required to make a good-faith certification that the loan is necessary due to economic conditions caused by COVID-19 and that it will use the funds to retain workers and maintain payroll, lease and utility payments. 

Loans have terms NOT found in traditional bank loans Lenders will not require application fees, closing costs, collateral or personal guarantees. The maximum interest rate will be 4%, and the first six months’ payments (principal and interest) will be automatically deferred. Finally, the lenders are not expected to perform credit analysis, because the loans will be 100% guaranteed by the SBA.  

Maximum loan amount The maximum amount will be 250% of an employer’s average monthly payroll (based on a 12-month look back from the date of the loan), but NOT MORE than $10 million. 

Permitted uses of the loan The loan can be used for “payroll costs,” which include salary, commission, or similar compensation (up to an annual rate of pay of $100,000 per employee); employee group health care benefits, including insurance premiums; retirement contributions; and covered leave from February 15, 2020, to June 30, 2020. Permitted uses also include payments of interest on mortgages, rent, utilities and interest on any other debt obligations that were incurred before February 15, 2020. 

Loans may be forgiven In general, borrowers will be eligible for loan forgiveness equal to the amount of certain expenses spent during an eight-week period after the origination date of the loan. These expenses are payroll costs, interest payments on any secured debt incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020.  

Percentage of employee retention related to amount of loan forgiveness The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year, and by the reduction in pay of any employee in excess of 25% of the employee’s prior-year compensation. However, to encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that rehire previously laid-off workers by June 30, 2020, will still qualify and not be penalized for having a reduced payroll during the loan period. 

No effect on federal Income tax Canceled indebtedness under this program will not be included in the borrower’s taxable income.   

Loan amounts not forgiven Any loan amounts not forgiven at the end of one year will be carried forward as an ongoing loan with terms of a maximum of 10 years at 4 percent interest or less. 

Tax Provisions Applicable to All Businesses

The CARES Act contains many dealer-friendly tax provisions that will assist dealers in maintaining liquidity during the disruptions caused by the ongoing coronavirus outbreak.  

Net operating loss (NOL) carryback Dealers will be permitted to offset losses in 2018, 2019 and 2020 against profits from the prior five years. NOL carryback was previously eliminated by the Tax Cuts and Jobs Act (TCJA) in 2017. This provision may provide dealers with losses in 2020 with substantial refunds. Losses that are used to offset pre-TCJA profits, which were taxed at a higher rate, will be refunded at pre-TCJA tax rates, providing an additional boost. 

Modification on losses for taxpayers other than corporations TheTCJA generally limited the amount of losses noncorporate taxpayers, including pass throughs, could claim to $500,000. Under the bill this limitation is suspended, allowing dealers to utilize excess business losses along with the new NOL carryback provisions to access critical cashflow.  

Qualified improvement property (QIP) technical fix The TCJA intended for businesses to deduct improvements made to retail property immediately under the TCJA’s bonus depreciation provisions, but due to a drafting error the depreciation lifespan was set at 39 years. This bill corrects this error retroactive to 2018. Dealers with significant outlays on QIP in previous years should consider amending their 2018 and 2019 returns to claim the deductions and receive a refund. 

Interest deductibility limit increased. The TCJA limited the deductibility of business interest to 30% of a dealership’s adjusted taxable income, except for floor plan financing interest, which remained 100% deductible. The bill allows businesses to deduct up to 50% of their adjusted taxable income for 2019 and 2020. Dealers should note that, coupled with the proposed IRS rules on the interplay between bonus depreciation and floor plan financing interest, if their total business interest, including floor plan financing interest, amounts to less than 50% of adjusted taxable income for these years, they may also be able to avail themselves of the bonus depreciation provisions in TCJA. Dealers unable to use full expensing in 2019 due to interest expenses between 30% and 50% of their adjusted taxable income may be able to generate refunds by filing an amended 2019 return.  

Employee retention credit Dealers who have been forced to close their business due to a government-mandated shutdown will be allowed a refundable payroll tax credit for retaining their employees. The credit is generally available to dealers whose operations have been fully or partially closed due to a government mandate and whose gross receipts have declined by more than 50%. For dealers with 100 or fewer employees, all employee wages qualify for the credit regardless of whether the business is shut down or not. The credit is limited to the first $10,000 of compensation paid per employee. This credit is available through the end of 2020. 

Delay of payroll taxes The bill allows businesses to delay the 6.2% employer portion of the Social Security payroll tax for the remainder of 2020. The delayed tax liability would then be paid back apportioned equally over the following two years.

As further details become available, NADA will release a more extensive summary of these provisions. For any questions, contact legislative@nada.org.

U.S. Dept. of Labor issues initial guidance explaining paid sick leave, expanded family and medical leave under the Families First Coronavirus Response Act (FFCRA)

The U.S. Dept of Labor’s Wage and Hour Division (WHD) announced its first round of published guidance March 24, 2020 to provide information to employees and employers about how each will be able to take advantage of the protections and relief offered by the Families First Coronavirus Response Act (FFCRA) when it takes effect on April 1, 2020.

FFCRA will help the United States combat and defeat COVID-19 by giving all American businesses with fewer than 500 employees funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members. The legislation will ensure that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus while at the same time reimbursing businesses.

The guidance – provided in a Fact Sheet for Employees, a Fact Sheet for Employers, U.S. Dept of Labor Questions and Answers document and a Fisher Phillips FFCRA FAQ document – addresses critical questions, such as how an employer must count the number of their employees to determine coverage; how small businesses can obtain an exemption; how to count hours for part-time employees; and how to calculate the wages employees are entitled to under this law.

“Providing information to the American workforce is a top priority for the Wage and Hour Division,” said Administrator Cheryl Stanton. “With so many workers and so many employers struggling to find their way in these trying conditions, providing guidance on a rolling basis will allow workers and businesses to prepare for the law to go into effect on April 1, 2020. We remain committed, and are working around the clock to provide the information and tools for employees and employers alike.”

The guidance announced today is just the first round of information and compliance assistance to come from WHD. A workplace poster required for most employers will be published later this week, along with additional fact sheets and more Q&A.

WHD provides additional information on common issues employers and employees face when responding to COVID-19, and its effects on wages and hours worked under the Fair Labor Standards Act and job-protected leave under the Family and Medical Leave Act at https://www.dol.gov/agencies/whd/pandemic.

For more information about the laws enforced by the WHD, call 866-4US-WAGE, or visit https://www.dol.gov/agencies/whd.

For further information about COVID-19, please visit the U.S. Department of Health and Human Services’ Centers for Disease Control and Prevention.